Josey Wells is considering making an investment in a tax shelter. The investment requires a cash...
Josey Wells is considering making an investment in a tax shelter. The investment requires a cash payment of $5,000 today, and the shelter promoter is sure Josey will double her money in about 5 years. What is Josey’s rate of return on the investment? Construct a time-line diagram to help you solve this problem.
Homework Answers
P = 5000
F = 2*5000 = 10000
t = 5 yrs
F = P*(1+i)^t
10000 = 5000 * (1+i)^5
2 = (1+i)^5
i = 2 ^(1/5) - 1 = 1.148698 - 1 = 0.148698 = 14.87%
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